Good morning, and welcome to the Aquestive Therapeutics Second Quarter Conference Call. At this time, all participants are in a listen-only mode. Later, there will be a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this call will be recorded. I would now like to introduce your host for today's conference, Ms. Lauren Walrath, Head, Corporate Marketing and Communications. You may begin.

Thank you, operator. Good morning, and welcome to today's call to review Aquestive Therapeutics results for the second quarter 2019 and business highlights as well as the top line data from the Libervant crossover study. On today's call, I am joined by Keith Kendall, Chief Executive Officer; and John Maxwell, Chief Financial Officer, who are going to provide an overview of recent business developments and performance in Q2 of this year. Additional members of our leadership team will be available for the Q&A at the end of the call. In total, we expect today's call to last approximately 60 minutes. As a reminder, our remarks today correspond with the earnings release we issued after market close yesterday. In addition, the recording of today's call will be made available on Aquestive Therapeutics' website within the Investor Relations section shortly following the conclusion of the call. To remind you, we will be discussing some non-GAAP financial measures this morning as part of our review of second quarter 2019 results. A description of these measures along with a reconciliation to GAAP can be found in the earnings release we issued yesterday. During the call, the company will be making forward-looking statements. We remind you of the company's Safe Harbor language as outlined in yesterday's earnings release as well as the risks and uncertainties affecting the company as described in the Risk Factors section included in the company's annual report on Form 10-K filed with the SEC on March 14, 2019, and in our quarterly reports on Form 10-Q. As with any pharmaceutical company with product candidates under development, there are significant risks and uncertainties with respect to our business and the development regulatory approval and commercialization of our products and other matters related to operations. Given these uncertainties, you should not place undue reliance on these forward-looking statements, which speak only as of the date made. Actual results may differ materially from these statements. All subsequent forward-looking statements attributable to Aquestive Therapeutics or any person acting on our behalf are expressly qualified in their entirety by this cautionary statement and the cautionary statements contained in the earnings release issued yesterday. The company assumes no obligation to update its forward-looking statements after the date of this conference call, whether as a result of new information, future events or otherwise, except as required under applicable law. With that, I will now turn the line over to Keith.

Thanks, Lauren, and thanks to everyone on the call for joining us this morning, as we discuss a number of important developments in our business during the second quarter and through July. John and I are going to walk through some details in our remarks today and will be joined by additional members of the Aquestive leadership team during the Q&A session afterward. Yesterday, we announced positive top line results in the single-dose crossover study for Libervant. This is a critical milestone for our lead asset, which is now positioned to drive significant value for shareholders. This puts us on a clear and straightforward path to completing the filing of our NDA for Libervant in the fourth quarter. We believe that we've met the specific requirements for approval communicated to us by the FDA, and our product continues to prove that it has attributes of lacking in all other current formulations of diazepam. In addition, today we'll update you on two other important developments. We continue to build a leadership position in the epilepsy market with the initial entry of Sympazan. Shipments are up materially to date over Q1 and they continue to trend higher. Second, we completed a deal to refinance our debt in order to reset the repayment schedule and terms and provide additional capital to the company. Let me start by putting our news about the crossover study into context. The progress of Libervant is truly exciting to us. Libervant represents a material contribution to improve patient care for the treatment of breakthrough and cluster seizures, and will potentially contribute up to $200 million to $300 million in peak net revenues within three years to four years post-launch. Over 1 million patients in the U.S. have active, uncontrolled epilepsy and a need for rescue medication. Less than…

Thank you, Keith. Good morning everyone. I will start by highlighting a few key items: One, our improved capital position and 2019 revenue outlook; also a gross margin revision that is solely a consequence of a shift in revenue mix and does not reflect any changes to the profitability of our proprietary or licensed products and a higher 2019 spend than previously anticipated. As Keith noted, we made substantial progress on our capital plans, eliminating debt repayment requirements in the near-term and providing access to additional capital. The total facility for up to $100 million provided $15 million of new capital upfront, pushed out repayment of principal until late 2021 and provides up to $30 million of additional capital, subject to the satisfaction of certain conditions, including $10 million at the filing of the Libervant NDA expected in Q4, subject to approval of noteholders and $20 million upon Libervant's FDA approval, which is expected in 2020. As part of the deal, we issued 2 million warrants for our common stock to institutional noteholders. Pursuant to the indenture, we will be registering these warrants as well as affiliate shares in a universal shelf registration in September. As you know, we do plan to monetize the Apomorphine royalty stream once that product is approved, which is currently expected to be in early to mid-2020. As we have noted previously, this royalty stream could provide additional capital of up to $100 million or so. At the time of any Apomorphine monetization, noteholders will have the option to buy down debt with up to $50 million of the proceeds, potentially leaving us with substantial new cash and a reduced debt balance. By now, you will have seen our financial results in our 10-Q and earnings release that were filed yesterday. I want to draw…

Thank you. [Operator Instructions] Our first question comes from Gary Nachman with BMO Capital Markets. Your line is open.

Hi. Good morning. It's Russ Bay [ph] on for Gary.

Good morning.

For Libervant, how soon could you launch after an approval? And how should we think about the competitive landscape at launch? How much of a potential threat is UCBs Nayzilam that was recently approved?

Sure. So this is Keith responding. We'll be preparing to launch once we have visibility into the PDUFA date as quickly after the PDUFA date as possible. The UCB product has not yet actually hit the market. We don't know what kind of traction they'll have, but we've always anticipated that we would enter the market with a, if not multiple competitors, and we are prepared to deal with that based on what we believe is a very strong value proposition for Libervant.

Thanks. And then for SYMPAZAN, can you provide some color on the assumptions behind your peak sales forecast of $65 million? What kind of penetration and gross to nets does that assume?

Sure. The gross to nets are consistent with what we are seeing now and what we've talked about publicly about the gross to net for that product and we'll continue that out. The penetration is relatively modest. I don't recall the exact number, but it's probably very low double-digits overall in that market. And we ramp it to that number over that period of time-based on some of the analogs we've seen in the market and what their performance was at launch.

Thank you.

Thank you. Our next question comes from Randall Stanicky with RBC Capital Markets. Your line is open.

Hi. Good morning. This is Ashley Ryu on for Randall.

Hi.

Hi. It sounds like there is some good momentum building behind SYMPAZAN. And could you talk a little bit more -- I know you said that the growth curve is going to be kind of analogous to some of the products that have already been on market. But could you kind of talk about the growth curve in terms of should we kind of expect this level of growth to continue? And then more accelerate once you start onboarding more reps for Libervant, given the high prescriber overlap? And are you starting to see, I guess, that acceleration from the removal of new-to-market blocks, yet?

Sure. I'm going to turn it over to Ken Marshall, our Chief Commercial Officer, to respond to that.

Great.

Hi, Ashley. How are you this morning?

Hi. Welcome.

Yes. The new-to-market blocks coming off is when you normally see volume pick-up with products. Keep in mind that this isn't a typical pharmaceutical market. These are very fragile patients. They may change very methodically. Once they may change, they tend to stick with it for longer periods of time than normal medicines. But you do see volumes of our shipments picking up in the July timeframe, and that's about the time you're seeing these new-to-market blocks come off. So yes, you should see some improvement there. If you're looking at coverage, as you expand on our sales force in anticipation of Libervant, we certainly will cover more physicians. But right now, our footprint covers the physicians that write the vast majority of clobazam. That medicine is very concentrated in those specialists that manage these fragile kits for fragile patients.

Got it. And you guys have said that you're expecting 70% to 75% covered lives by year-end. What are you at right now?

Yes. If you look at the MMIT audit, which is probably the industry standard to assess these types of things, overall 47%. The coverage in our two key segments, Commercial and Medicaid are almost equal at that number. So we're well on our way. We've got a couple of contracts in red line right now. If those come through, we actually might get that a little earlier.

Okay. Thanks so much.

Thank you. Our next question comes from Liana Moussatos with Wedbush Securities. Your line is open.

Thank you for taking my questions. Your guidance of $38 million to $45 million in total revenues minus $29 million to $32 million for Suboxone in generic, what's the remaining $6 million to $16 million?

Sure, Liana. Good morning. The -- we have 4 components in our revenue. Manufacture and supply, which Suboxone guidance will make up the majority of that number. We have license fees and royalties, which we've made about $5.5 million to date and would expect the second half of the year because we've moved apomorphine out to be a relatively smaller number. We have co-development fees, which continue on a normal course. We have activity with a few different potential licensees. And that number will remain in the range of where it is. And then SYMPAZAN would be the remaining piece of our total revenue picture.

Thank you.

Thank you. Our next question comes from Jason Butler with JMP Securities. Your line open.

It's Roy for Jason. Hi, thanks for taking our questions. I had a quick one. Keith, you kind of mentioned and I think, but there -- in the crossover trial for Libervant, we had about a 10% failure rate on the rectal gel. Is that consistent with real-world use? And it sounds like it was due to poor bioavailability. There were no other problems with the dosing. The dose was correctly delivered.

Sure. I'm going to let Dr. Gary Slatko, our Chief Medical Officer, grab that because the technical nature, that's beyond my pay grade.

Thank you. Good morning. So the non-responders in the dice in the rectal gel group all occurred in the highest weight group, the 20-milligram group, which was the highest dose group in the study. That dose group is -- that dose is higher than the maximum dose of film, which was 17.5 milligrams, which is the maximum dose for the highest weight group for film. This is consistent. This incidence rate is consistent with what we've seen in previous studies. In our experience, it's also generally consistent with what's been reported in the literature. The event rate in literature studies ranges anywhere from 3% to 18%. So the average of that is roughly 12%, which is consistent with what we're seeing here.

Okay. Great. And then a couple on the SYMPAZAN launch, it's early in the launch obviously, but any plans for adjustments to the selling efforts or new initiatives? And then how many of the target prescribers have written a prescription? And what was the return rate for the quarter?

Ken, do you want to take that?

Yes. So as far as adjustments, I think we're right on target with our messaging. So that's going to stay as it is. We will dial up our presence with caregivers. After you've made a few rounds with physicians, it's very appropriate to start talking more to the caregivers and the higher functioning patients, if that's reasonable. It's a nice way to accelerate your business. If you look at the numbers of physicians who've written, and as Keith mentioned, we've had a significant increase quarter-over-quarter, that's approaching nearly 10% of our core physicians and 5% of our overall targets. We'll approach 300 writers by the end of this month.

Okay. Okay. Great. And the return rate for the quarter? Do you know that?

It's very -- it's virtually nothing and nothing ultimately come back. Sometimes there are returns from a wholesaler -- through the wholesalers, but not -- we haven't seen returns...

Yes. We have no returns. There is some restocking as there are always with specialty brands when it goes to pharmacy and isn't picked up, but we have no returns that would come back, I would say on this. It's a good question.

Okay. Thank you.

Thank you. Our next question comes from Thomas Flaten with Lake Street Capital. Your line is open.

Thank you. Good morning guys. A quick question for John. What was the GTN in second quarter?

Second quarter gross to net was in the mid-40s. I'm sorry, I'll get the exact number for you. I don't remember it, but it's in the mid 47%. And I'll give you --

And then a couple -- sorry, John.

No, go ahead.

Just a couple of questions on the Libervant study. I noticed in the press release, the Tmax description didn't have a comp to Diastat? Were they similar? Can we infer that from meeting the endpoints?

Right. So this is Gary. So the Tmax for Diastat's consistent with the Diastat label. So there are no surprises in terms of how Diastat performed. The Tmax for the film was -- despite being in a fed patient population, was consistent with what we've seen in healthy subjects who were fasting. So it was actually a little bit faster than what we might have expected.

Great. And then, from a submission and labeling perspective, is this going to be weight-dependent dosing? And I'm just curious how the dosing administration section is going to look. Or what you're going to submit to FDA?

Right. So the way the study was designed was based on a weight-based algorithm, which is consistent with how the rectal gel is administered. Our dosing is slightly different, but it is based on a different dose for different categories of weight. And when we administered in this study according to the -- the dose according to those different weight groups, the concentration of diazepam that was achieved across the different weight groups was relatively consistent, which was, to us, confirmation that the algorithm is doing what it was intended to do.

Excellent. That's great. And John, one more for you. On the debt facility with the incremental up to $10 million that you can pull down on Libervant submission, just mechanically, is that on acceptance to file? Is there a time lag? And how long it will take you to get that money? Just can you explain the mechanics around that a little bit?

Sure. There's a couple of important mechanics. One is, it's on filing. It isn't on acceptance. So we would expect to be able to access that in Q4. We do need noteholder approve -- majority noteholder approval, and we would have to be in compliance with the indenture.

Excellent. Thanks so much.

And then, Thomas, just to answer your question more precisely, the gross to net in Q2 is -- there is a 40% discount, not 47%. The overall on the year is expected to get to 47% roughly.

Helpful. Thank you.

Thank you. [Operator Instructions] Our next question comes from Ram Selvaraju with H.C. Wainwright. Your line is open.

Good morning, everyone. This is Edward on for Ram. I appreciate you taking the question. Just a few leftover for me. You were talking about the -- or there is a mention of that 10% rectal gel treated subjects failing to achieve the adequate exposure. Considering this is what is seen in the real-world environment, I was wondering how important this was for labeling and for approval?

Well, in our discussions with FDA, we designed the protocol in consultation with them and our design and analysis included the plan to include -- design the study as a real-world study, the real-world conditions, which included patients who were getting concurrent meds. If patients were getting rectal gel were not pretreated with an enema. So they were under real-world conditions. So we -- and the patients who were fed, which is more likely how patients would appear when they are being treated with film or gel. So we believe we've replicated with the study, the real-world conditions that we will be treating patients under, and that should be reflected in how the labeling reads.

Okay. That makes sense. And then, a couple around the study design and the results. It looks like about three out of the 31 patients were excluded from the primary analysis. Just wondering why they were excluded. And then, looking at the overall amount of data, I was wondering if the FDA would have any additional remaining questions about the film versus the gel. I just wanted to ask about that, as you're going through the remaining filing for the NDA. And whether that's part of what might be in that September submission, or if you believe that you have not only all the clinical data, as you mentioned in the press release, but you have all the background manufacturing data as well for that NDA.

Sure. So regarding your first question, of the 31 patients to experience adverse events that were considered not related to the medication administration. So those patients were discontinued, and we're not able to complete both arms of the crossover. So we didn't -- we were not able to use them in the primary analysis. The third patient was excluded, because they did not meet a protocol requirement of having a low diazepam level at the time they were to be started on the next arm of the trial. So they were disqualified for that reason. In terms of the second question, we plan to do secondary analyses. In addition, to completing the statistic QA and statistical analysis on the primary data, we were planning to do secondary analyses, that we will be sharing at the KOL day to be scheduled in fall. Additional information, we anticipate, sharing at the time, would be information around the time course to different diazepam concentrations that we're comparing film to gel. And we will also talk about additional analysis of a meaningful subset of patients who are exposed to a high-fat diet, in anticipation of potential questions that we may get from FDA around that population. Those are the questions that we would anticipate, getting -- potentially getting from FDA. We believe this study has answered all the other outstanding questions that the FDA would have.

And Edward, this is Keith. I'm going to let Dan Barber give you a little more color on the regulatory part of your question, okay?

Yeah. Ed good morning, just to add on to Gary's, clinical analysis from a CMC perspective, we remain on track for putting that portion in on September 30, like we've guided before. We don't see any obstacles to submitting that. And there are no additional clinical studies that we plan on performing prior to our NDA submission. So, the -- all of the work to get to filing at this point is in our four walls.

Excellent, yeah, I just wanted to make sure that everything was still tracking along with your guidance. So, I appreciate all that color, two more quick questions that, you might be able to answer really quick are you providing any guidance on, SYMPAZAN revenues for 2019?

No, we are not. I mean we just got out of new-to-market blocks. We've just crossed the threshold with a number of new PBM contracts that are significant. We've got to see how that progresses. And then, we'll evaluate later in the year. But we don't plan to provide guidance. Ed, I think that make sense?

Yeah. That makes sense. And then, just looking at Suboxone really quick, just wondering if there is going to be any resolution on the litigation that, I know you've heard about, at least. And maybe some possible outcomes, can you talk about it. It looks like you're raising your guidance. So things are looking up, but just wondering, what you're seeing for the future?

Yeah, Ed, this is Keith. I think questions about the litigation are best directed to Indivior. We don't have visibility into their litigation strategy, at this point in time. We continue to see a very strong market. We continue to see very strong performance of both the brand. And the authorized generic, both of which we are the exclusive providers of. We'll continue to enjoy that strength for as long as we have visibility into it. And we'll react to the different litigation components, as they become visible to us. But in terms of strategy and expectations, that's a question best directed to Indivior.

Okay. Well, that's all for me. I appreciated you guys for taking all the questions. Congrats for a great quarter.

Thank you.

Thank you. And I'm showing no further questions, at this time. I would like to turn the call back over to Keith Kendall, for closing remarks.

Thank you, operator. Well, thank you, everyone, for joining today's call. Obviously, we are very excited about the significant progress that, our team has made over the last couple of months. And we look forward to, continuing to deliver in the third quarter. And remaining focused on the successful conclusion of the epinephrine trial that is ongoing right now in Canada, continuing to develop SYMPAZAN and Aquestive's position in the epilepsy market. And obviously, most importantly to continue to progress Libervant toward, its ultimate filing in Q4. So, thank you all for joining. And we'll look forward to talking again soon.

Ladies and gentlemen, this concludes today's conference. Thank you, for joining and everyone, have a wonderful day.